The sub prime mortgage crisis has become a vital issue in the economy today. More and more people are being persecuted by this crisis. Though sub prime mortgages actually constitute only 7 of all the loans in the country, it accounts for 43 of the loans that have been actually foreclosed in the third quarter.
Many powerful banks and brokers invested in Structured Investment Vehicles (S.I.V.s), and in this situation of crisis, these investors are salvaging and lending a helping hand to these S.I.V.s, and similarly these brokers and banks are being helped by the foreign investors and the federal reserve.
For examples, organizations in Singapore and U.A.E. have lent a hand in the past to American corporations like Merrill Lynch and other money Center banks, and offered a lot of money in cash. The person who has been the worst sufferer in all this is the common man, there are no foreign investors to bail him out. Congress has recently intervened and arranged for tax relief for the common man.
The past year, 2007, the hardships of the homeowners reached an all time high. According to the Mortgage bankers association over 995,000 homes are in foreclosure now. Earlier, on top of this misfortune of foreclosure, you would have been taxed by the government on the forgiven debt that occurs from a foreclosure, for the government considered that as taxable income.
IRS sent a under reporter letter to all those people who did not address the foreclosure about their returns. As a result the forgiven debt caused accumulation of tax debts. But with the Mortgage Forgiveness Debt Relief Act of 2007; all that has changed. The congress actively seeks to bail out these unfortunate people affected by the crisis.
Taxes on forgiven debts are waived for a period of 3 years under the new laws of mortgage forgiveness debt relief act, for example H.R. 3648 suspends tax on forgiven debts from foreclosures, (1/1/07 through 12/31/09).
It has been calculated that this law might save the money of the people affected by foreclosures up to $600 million. However it is not applicable to those affected before the start of 2007. But the law includes within its ambit loan renegotiation plans and also maybe, partial reduction of debt.
But the important thing is that this Mortgage forgiveness debt relief only applies to debt related to improvement or upgrading of homes and residences. It does not provide relief or exclude from taxation those who encashed their equity to make purchases or investments other than their homes. They might still be taxed if not exempted for reasons of bankruptcy under IRS Code Sec 108. If you have a qualified residence then a forgiven debt of up to $2 million is exempted from taxation.
So if your property has been foreclosed then it will help you to be aware of the mortgage forgiveness debt relief act. Also get your tax returns filed by a qualified professional and not a quack. Chain store tax shops are not very efficient either. Temporarily, you might be spending more but eventually it will help you save a lot of money.
Author Resource:-
Article written by Jessica Bradbury, she has a site dedicated to botton line information at http://www.mydebtandcredit.com
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